Seven years after its invention, Bitcoin still isn’t mainstream. However, more people in the established finance sector have given it a vote of confidence than ever before, as indicated in Bitcoin start-up Coinbase’s latest funding round.

Coinbase, which markets itself as a beginner-friendly Bitcoin “wallet,” or online storage repository, has received a nod from the financial sector in the form of generous investments in its $75 million funding round. The New York Stock Exchange, the financial services firm USAA and the Spanish bank BBVA were among Coinbase’s new investors. Former Citigroup CEO Vikram Pandit and former Thomson Reuters CEO Tom Glocer also made investments.

The value of a single Bitcoin has fallen drastically in the last twelve months, which has had the silver lining of encouraging people to spend their hoards and stimulate the Bitcoin economy. Trade, transaction, and venture capital investments have all increased.

Bitcoin differs from other currencies in that it can be "mined" by computers and its digital status pseudonymously protects spenders' privacy. It may not be as stable as the dollar, but financial giants think it has something to offer.

Maybe someday you’ll be able to go up to your bank teller and withdraw or deposit your money in bitcoins. But today, Bitcoin banking is still far away.

The reasons have to do with risk and regulations—two topics that don't have much to do with your day-to-day finances, but that mean a lot to the banks that handle them.

Enthusiasts of Bitcoin, an all-digital currency, laud it for its cryptographic security and pseudonymous transfers which make it like cash. But in the end, it's another currency, like euros or pounds. If you want to do business in dollars, you'll have to convert it to dollars. And where do you get your dollars in cash today? Probably a bank.

While early adopters may be content to roll their own encryption and figure out how to store bitcoins securely, most consumers will probably want to leave the safekeeping to someone they trust with other forms of money.

Bitcoin And Banks

It’s not that banks have a bad relationship with Bitcoin. It’s that most banks don’t have much of a relationship with Bitcoin at all.

Eli Dorado, director of the Technology Policy Project at George Mason University's Mercatus Center, said that even though tech-savvy people have known about Bitcoin for years now, banks still view the currency as an unknown—and hence a liability.

Before consumers can withdraw or deposit bitcoins with a bank teller, banks will have to get used to dealing with Bitcoin-related businesses. And they're largely not there yet.

“The real problem in Bitcoin is businesses getting banking at all,” Dorado said. “Banks are afraid that Bitcoin businesses will fall into the category of being a high-risk activity, the way firearm sales and porn stars’ bank accounts are sometimes viewed.”

Then there are Bitcoin wallets, which hold bitcoins for consumers and businesses, and let them transfer or spend their bitcoins.

Then there are Bitcoin payment processors, which help merchants accept bitcoins in exchange for goods or services, much like credit-card processors do. Some convert bitcoins to dollars or other local currencies immediately, while others let merchants keep the bitcoins if they choose.

Some Bitcoin businesses combine multiple functions: For example, Coinbase provides both a wallet for consumers and payment processing for retailers.

These are all lines of businesses that banks already pursue in local currencies—so it would be logical for them to enter the Bitcoin arena, too. So far, they haven't.

Bitpay is one of the larger payment processors. Its customers include retailers like NewEgg and Shopify.

“We’re much like any merchant processor in the credit-card space,” said Bitpay CFO Bryan Krohn. “We take payments, convert them to local currency, and put them in the merchant’s bank account.”

Bitpay's Krohn says the company spends a lot of time and money to talk to state and federal policymakers so they know what Bitpay is, what it does, and how it complies with all known Bitcoin regulations.

“With any new technology, there are going to always be frowned-upon uses," Krohn said. "When the Internet first came out, it was used for a lot of unsavory stuff. Some banks won’t even risk working with Bitcoin businesses, not because they lack the technical ability, but because they have concerns about how it’s used and how it’s regulated.”

Bitpay is working with a bank to send deposits to customers' bank accounts. But Krohn wouldn’t name it, citing the “importance of that relationship."

That's indicative of the caution banks are taking with respect to Bitcoin.

Making Friends With Bitcoin Businesses

One bank that’s taken a less conservative stance is Silicon Valley Bank, which has long made a business of providing banking services to startups other banks see as high-risk. One current client is Coinbase, the Bitcoin wallet and payment processor.

“On the business-to-business side, we are looking at everything on a case-by-case basis and partnering with our regulators to ensure they have as much information as is available to make informed decisions,” a spokesperson told ReadWrite.

Even so, the role Silicon Valley Bank is taking with Coinbase appears to be performing dollar-denominated money transfers. It's not stashing bitcoins in a digital vault. SVB may well be the most Bitcoin-friendly bank in the country, but it still doesn’t have enough clarity on regulations to offer bitcoin-denominated accounts to customers.

Expect these fits and starts for a while. The most progress has occurred in New York, where the New York Department of Financial Services has proposed a Bitcoin license whose regulations would be less burdensome than those for a state-chartered bank. But that would help new Bitcoin businesses more than it would banks.

“I don’t think [banks] are a high priority with lawmakers,” said Dorado. “The much higher priority is creating regulatory certainty for companies that want to enter the market and don’t want to be regulated as banks.”

Before you get whipped up with excitement over the idea of PayPal taking bitcoin, here are some caveats:

You can't keep bitcoins in your PayPal account like you would dollars, euros, or other major currencies. Nor can you send bitcoins back and forth via PayPal.

Only merchants who have adopted Braintree's newest software, the V.zero SDK, and signed up for a Coinbase account will be eligible.

Some of the customer conveniences of using Braintree, like storing a customer's shipping address so she doesn't have to fill it out on a mobile device, won't be available in the initial release.

It's nonetheless a foot in the door for Bitcoin at PayPal, and a big validation of Coinbase, one of many competing bitcoin-wallet startups.

The announcement shows how PayPal is paving the way to help retailers not not just with Bitcoin but other rapidly evolving forms of payment as well.

"We want to future-proof merchants so they don't have to have 10 different dashboards to see all the buying that's happening," Ready told me in a joint interview with Brian Armstrong, CEO of Coinbase, on Monday.

Armstrong said he expected there to be more interest in bitcoin payments from online retailers.

"People swipe their cards in bricks-and-mortar and find it pretty convenient," Armstrong said. By contrast, paying 2% in credit-card fees can consume much of online retailers' profit margin.

Coinbase doesn't charge for bitcoin-to-bitcoin transactions, but Armstrong says the "vast majority" of its merchants use a service called Instant Exchange, which converts bitcoin to local currencies. Coinbase charges a 1% fee for those transactions, though it currently waives fees on the first $1 million in sales.

The joint PayPal-Coinbase will charge the same fees, including the waiver. It's not clear if PayPal and Coinbase will split the fees on transactions routed through Braintree's software.

"The merchant will have one price that covers what both of us are doing," Ready said.

We’ve all got at least a passing understanding of Bitcoin, that digital crypto-currency that can’t be regulated by any bank or government (at least for now).

But here’s a trickier question: what’s a bitcoin actually worth?

Like gold, Bitcoin derives its value from scarcity. It is intentionally difficult to use computers to create and add to the chain of cryptographic phrases that make each bitcoin unique—a process known as bitcoin mining. The currency is capped with a finite limit, too, so the more bitcoins exist in the world, the harder and slower it is to mine more of them.

It’s easy to determine how Bitcoin is trading at any given moment, but that’s not the same thing as knowing what its actual value is in the real world. On Mt. Gox, the world’s largest Bitcoin exchange, bitcoins were changing hands at $103.80 as of August 8. On Bitstamp, the second largest exchange, a bitcoin traded at $94.99. On Coinbase, the popular U.S. Bitcoin wallet, it’s somewhere in between, at $96.58.

In this way, Bitcoin is just like the American dollar. What bitcoins are worth varies from market to market all over the world. For example, right now on August 8, one U.S. dollar is worth 0.75 euros, although its value will almost certainly have shifted by the time you read this.

One big way bitcoins differ from fiat currencies like the dollar is that those currencies have what you might call "safe zones" where buyers and traders can reasonably expect them to maintain a consistent value. The dollar, for instance, is backed by the U.S. Federal Reserve, which is charged with maintaining domestic price stability—that is, with minimizing fluctuations in the dollar's value as measured in goods and services.

Thanks to that backing (and a lot of monetary heavy machinery that makes it work), I can buy a toothbrush at the convenience store today and be reasonably certain that it will cost pretty much the same at the same store next week.

Not so for Bitcoin. Companies that accept payment in bitcoin can't usually pay their suppliers and employees without converting bitcoin to, say, U.S. dollars. And that introduces a big element of risk if the value of bitcoin is changing everywhere on a day-to-day—even a minute-to-minute—basis.

Knowing that Bitcoin’s worth is this volatile brings up more questions than answers. Here’s what the experts have to say.

Why Doesn't The Bitcoin Market Correct Itself?

If you know that bitcoin is trading at a much higher amount of dollars at Mt. Gox than it is at Bitstamp, why wouldn’t you buy from Bitstamp and sell to Mt. Gox? A cursory calculation assures that you'd net a quick 7% return—virtually free money.

It seems like a sound investment. And if everybody did this, the market would even out and correct itself. And perhaps that would happen, said Erik Vorhees, a Bitcoin pioneer and CEO of Coinapult, if Bitcoin conversion didn’t take so incredibly long.

“It takes forever to get USD [U.S. dollars] out of Gox,” he said. “If you sell Bitcoin there, you are going to be waiting many weeks for the money. So people prefer to sell elsewhere, though they may be happy to buy at Gox. If USD could be withdrawn from Gox in 3 to 4 days, you'd see the spread immediately disappear.”

How Liquid Is Bitcoin?

Since it takes so long to convert Bitcoin to U.S. dollars, you’d be right to assume that the Bitcoin isn’t very liquid. It takes time to buy, sell and move the cryptocurrency around.

According to Nicholas Weaver, a senior staff researcher at the International Computer Science Institute in Berkeley who studies emerging technologies, Bitcoin grows more volatile—because its liquidity decreases—the more bitcoins you want to trade. That’s because Bitcoin is still a relatively immature currency, lacking vast numbers of traders who can quickly meet buy or sell orders of any size.

“[Bitcoin is] about as liquid as a penny stock, that is, in small quantities it’s reasonably liquid but anything significant will not be liquid,” he said. “If you want to buy or sell $100K or $1M in Bitcoin, the market will go crazy.”

Is Bitcoin A Good Investment?

Here is where our two experts differ. Vorhees believes the Bitcoin is becoming a more stable investment every day.

“Bitcoin is just more volatile than most everything else because it's still new, and still a tiny market,” he said. "But, over time, the volatility will calm down, indeed it already has.”

Weaver is far tougher on Bitcoin. It’s not just that Bitcoin is volatile, but that Bitcoin transactions are completely irreversible.

If you experience credit card fraud, you can report that to the credit card company and get the transaction reversed. In order to maintain that level of fraud mitigation, you need trusted central authorities called banks, he said—institutions that go completely against Bitcoin’s core philosophy.

“Bitcoin instead, by lacking any trusted parties, is designed to be irreversible: Once a Bitcoin transaction is committed, it can NEVER be undone,” he said. “Which means you can never simply transfer your money from a bank account to buy Bitcoins. Anyone who allows such things will be undone by fraud.” As in, fraud that can't be reversed precisely because there's no entity standing behind the transaction to guarantee its integrity.

“You're selling to Crypto-Anarchist-Libertarian-Cave-Dwelling-Goldbugs who believe in Bitcoin—and can sock an extra charge on them for the privilege,” he said. “[Or] you're selling things that cannot be processed using credit cards, namely gambling and drugs.”

Since Bitcoin is assumed to be untraceable, illicit marketplaces like Silk Road exist to turn your bitcoins into illegal goods. But Jeff Garzik, a member of the Bitcoin core development team, maintains that Bitcoin is not as anonymous as you might think.

“Attempting major illicit transactions with bitcoin, given existing statistical analysis techniques deployed in the field by law enforcement, is pretty damned dumb," Garzik told Kotaku.

There’s no easy answer to, “what’s Bitcoin really worth?” If you truly believe in Bitcoin as a digital currency that could change the world, you’ll probably be willing to pay for the risk. If not, perhaps it’s best to keep your money in good old-fashioned dollars.